Of Special Interest


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4th October 2011

Consequences to BoA of the Debit card fee

Bank of America confirmed at the end of last week that it would charge basic checking account customers a fee of $5 for each month in which they use their debit card for a retail purchase. ATM usage, mobile top-ups and online bill-paying will not incur a charge. The fee will start next year. A bank spokeswoman is quoted as stating that the bank is "adjusting our pricing to reflect today's economics."

The announcement generated tens of thousands of online comments and the great majority, not surprisingly, were negative. Customer sentiment was not helped by the fact that during Thursday and Friday of last week there were intermittent interruptions to the online banking services. One online news article attracted over 1,690 comments.

One of the few defenders of the policy stated that it was a transparent charge as opposed to many of the hidden charges levied by banks. Whilst true customers want 'free banking', even if they know its not really free in all circumstances. Wells Fargo and Capital One have said there will not introduce monthly fees upping the competitive stakes. Apathy and a cynicism towards all banks is likely to mean that after an initial wave of defections, probably not that large compared with the customer base size, the attrition rate will take some to become clear. It is probably that many defections may be triggered by specific events such as moving house or job. The move will be to another bank and not another branch as it might otherwise have been, similarly when the bank makes a mistake the account will move. Other banks not charging will probably find their new customer campaigns significantly more effective and BoA bank find its campaigns not effective. One thing that may hurt in particular is that the charge is likely to annoy the older customers at least as much, if not more, then the younger due to the fact they are not so used to paying charges. It is the older customers who are likely to keep separate savings accounts and higher balances in their checking accounts. As for the 'today's economics' remarks, banks in Europe have been restricted in what they can charge for debit card usage for some years to a greater extent than the Durbin Amendment imposes and yet in general have chosen not to impose a monthly fee.

A significant number of observers believe that rather than any total about turn it is probable that Bank of America will place more and more customers into accounts that do not charge this fee so backtracking without having the public humiliation of admitting to the error.